Correlation Between Steel Dynamics and Industrial Commercial

Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Industrial Commercial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Steel Dynamics and Industrial Commercial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Steel Dynamics and Industrial Commercial Bank, you can compare the effects of market volatilities on Steel Dynamics and Industrial Commercial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Steel Dynamics with a short position of Industrial Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Industrial Commercial.

Diversification Opportunities for Steel Dynamics and Industrial Commercial

0.67

Correlation Coefficient

Steel Dynamics  Industrial Commercial

Poor diversification

The 3 months correlation between Steel and Industrial is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Industrial Commercial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Commercial and Steel Dynamics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Steel Dynamics are associated (or correlated) with Industrial Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Commercial has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Industrial Commercial go up and down completely randomly.

Pair Corralation between Steel Dynamics and Industrial Commercial

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.06 times more return on investment than Industrial Commercial. However, Steel Dynamics is 1.06 times more volatile than Industrial Commercial Bank. It trades about 0.14 of its potential returns per unit of risk. Industrial Commercial Bank is currently generating about 0.12 per unit of risk. If you would invest  11,014  in Steel Dynamics on September 12, 2024 and sell it today you would earn a total of  2,422  from holding Steel Dynamics or generate 21.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Steel Dynamics  vs.  Industrial Commercial Bank

Steel Dynamics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Industrial Commercial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Commercial Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Industrial Commercial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Industrial Commercial

The main advantage of trading using opposite Steel Dynamics and Industrial Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Industrial Commercial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Industrial Commercial will offset losses from the drop in Industrial Commercial's long position.

The idea behind Steel Dynamics and Industrial Commercial Bank pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Managers module to screen money managers from public funds and ETFs managed around the world.